1st Quarter 2009

Tennessee Trade and the BRIC

Brazil, Russia, India, and China

by Steven G. Livingston

The hottest acronym in international economics must be "BRIC." This refers to Brazil, Russia, India, and China: the largest and most influential countries of the developing world. The term was coined by a Goldman Sachs analyst back in 2001, but it has taken on a life of its own. The BRICs even held their own international summit in Russia in June. If ever there was an example that the global economy has entered the post-modern era, it must be when an analytic construct decides to become an actor!

The BRIC is important because many assert the lion's share of global growth over future years will be in these four markets. In the case of international trade, the four already account for 14% of world imports outside of the U.S. Projections are that this figure will become much greater in future years. These nations will of necessity become much bigger targets for U.S., and Tennessee, exporters.

Like most constructs, BRIC hides differences behind similarities. The four BRIC nations are hardly the same. The chart shows their substantial divergences. Russia is the smallest of the four, and in another generation it will be quite a bit smaller. It is also a monoeconomy, heavily oriented to oil, gas, and mineral production. India is, by quite a bit, the poorest and the youngest. Its economic needs remain more basic than those of the other three. Brazil is perhaps the most internally diverse, with portions of the country essentially fully developed while other regions remain poor. And China, of course, is economically almost on a different planet than the others. It has by far the largest and fastest-growing economy. In fact, the BRIC might remind some of the old joke from the 1960s, when the dictator of China's small, solitary European ally announced that "together, the 803 million people of China and Albania cannot be defeated." Maybe China doesn't need the BRIC!

But despite these differences the BRICs share two important features. They are very sizable economies, each potentially among the world's 10 largest, and they are growing rapidly. The current global crash has certainly affected them (although China's growth still continues at around 7% this year), but comparatively they have fared better than much of the world and continue to have remarkable potential for future growth. It is quite correct to presume that these economies are in the forefront of future trade and foreign investment possibilities.

Comparing BRICs

Brazil

Russia

India

China

Population (millions)

140

199

1,166

1,339

Median age

28.6

38.4

25.3

34.1

GDP (trillions)

1.99

2.225

3.267

7.8

GDP / capita

$10,100

$15,800

$2,800

$6,000

2008 GDP growth

5.20%

6.00%

6.60%

9.80%

10-yr Average Annual GDP growth

2.60%

7.00%

7.00%

8.50%

Exports (billions)

200

476

175.7

1,465

Imports (billions)

176

302

287.5

1,156

% of imports from US

15.70%

4.80%

7.80%

7.30%

Here we focus on trade. As we can see, the U.S. is a substantial, though not overwhelming, exporter to each of the BRICs. Russia remains the smallest market. This is because it is one in which it is most difficult to do business (i.e., the least open) and because it has the most narrow economy. From the U.S. perspective, total exports to the BRIC have risen rapidly over the past decade. In 1998, these four nations bought about $24.5 billion of U.S. goods. Ten years later that grew to $132.4 billion: a doubling of the share of total U.S. exports that go to the BRIC markets. The story is largely the same for Tennessee. The four BRIC nations purchased $2.14 billion in state-produced goods in 2008, or 9.2 percent of total state exports, about double the percentage of a decade ago. If we thought of the BRIC as a single market, for Tennessee exporters it would approach in size that of Mexico's. However, Tennessee does somewhat lag the nation in its export growth to the BRIC. This is primarily because of a relatively poorer performance in India. A look at the trend of Tennessee's BRIC exports shows that two markets, India and Brazil, have grown roughly in line with its non-BRIC exports. (Though each has grown a bit faster.) Russia and China have been the most dynamic for this state.

State exports reflect these markets. The largest category of exports pertains to textiles and apparel production (including cotton). Last year this amounted to more than $540 million, about a quarter of total BRIC exports. Chemicals accounted for about $160 million in state sales and base metals another $200 million. Plastics, electronics and computer equipment, and medical instruments are the other sizable export sectors to this "region," each with exports well over $100 million in 2008.

What does the future hold? Of course, much of that future will be made in the four countries concerned. Each has obstacles to overcome, and reforms that must be made, to maintain their continued growth. But the evidence of the past decade is that they will be increasingly important markets for state exporters. Just a quick look at the largest import sectors for each of the BRICs reveals sizable opportunities for Tennessee businesses. Many of the products these countries are buying are made in this state. The most problematic might be the very large opportunities in the automotive sector, given the intense global competition in that sector. But Tennessee automotive parts exporters have already shown they can crack the Brazilian market. Heavy machinery also offers excellent possibilities across all four BRIC states. Indeed a look at these "top 10s" shows only a few products that are not made by any Tennessee exporters.

It will be interesting to see if the four BRIC nations succeed in becoming anything more than an acronym. Either way, this acronym is very likely to become increasingly important to businesses in Tennessee and around the world.